It's a good idea to start your auto-enrolment planning early – especially given the growing demand on pension scheme providers and advisory firms to help companies meet their obligations.

The inevitable and inescapable progress of the auto-enrolment legislation has become a reality. So far, a slow trickle of larger companies with the dedicated resources and, perhaps more importantly, the finances to help them achieve a smooth transition to meet the regulations, have been establishing their arrangements.

But there is another very important factor that these companies have in their favour that the vast majority of employers may not – the market currently has the capacity to meet their demands. This means not only pension scheme providers, but also the advisory firms integral to helping such companies design, source and implement pension schemes to meet their obligations.

Projected staging dates

The Pensions Regulator's own projections show that over 12,000 employers, with 160 to 249 employees have reached their staging date.

However, industry experts predict that traditional pension providers only have the capacity to install 2,000 schemes per month. If this is true, in practice, where will the remaining employers go? They may have no choice other than to go to the National Employer Savings Trust (NEST), which is legally bound to accept all employers that want to use it. While this may well be the best place for these employers, many might prefer to have some choice over which solution to adopt.

The number of companies reaching their staging dates each month is set to rise steadily from this year – 40,000 per month by March 2016, 60,000 by August 2016 and nearly 100,000 by February 2017, before they peak between October and December 2017 at over 130,000 employers per month. So the situation is only going to get worse.

Heavy fines for non-compliance

Under auto-enrolment the regulators may impose heavy fines for noncompliance. So it's vital that pension providers control the services and therefore the number and nature of the schemes that they take on.

The reputational risk for providers of failing to meet the regulations is extremely high and there is a growing feeling that providers will only look to take on those employers that are showing an active interest in pension provision for their staff. Some providers are already refusing to offer terms to companies not engaging early in the process and allowing sufficient time to get their scheme in place before their staging date. Some may even decide that they are only interested in schemes above a certain minimum level of contributions.

Don't be left stranded

It's inevitable that as the number of companies seeking help from advisory firms increases, the fees they charge will rise. Some advisory firms have already set minimum fee levels that employers must meet if they want to engage their services. Many are now actively selecting the size and character of the companies they will work with and are turning away those that don't meet their business models. Companies that don't engage with advisers early on in the process will need to squeeze their services into a shorter timeframe and may find that if they wish to use an adviser to assist with auto-enrolment, they may have to pay a sizeable premium for delaying that decision.

We have taken great care to ensure the accuracy of this newsletter. However, the newsletter is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. © Smith & Williamson Holdings Limited 2014. 14/494. exp: 30/11/14